Oil field robots part of $34 billion GE-Baker Hughes vision

By David Wethe and Richard Clough, Bloomberg News

December 22, 2016

Photo: Associated Press /File Photo

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Autonomous drilling systems are among the technology that can help reduce risk and improve performance in an industry that hasn’t always delivered strong results, executives told analysts and investors. Leaders of General Electric Co. and Baker Hughes have laid out a futuristic vision as they make the case for a deal that would create an oil giant with $34 billion in annual sales by the next decade. less

Autonomous drilling systems are among the technology that can help reduce risk and improve performance in an industry that hasn’t always delivered strong results, executives told analysts and investors. ... more

Photo: Associated Press /File Photo

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Baker Hughes employees monitor a customer’s wells remotely. A more complete robot rig system means an engineer could design an oil well at his desk. And with the press of a button, an automated system would identify the equipment needed from a supplier, create a 3-D model, send it to the rig and tell it to execute it, says Ahmed Hashmi, head of upstream technology for BP. “That is automation.” less

Baker Hughes employees monitor a customer’s wells remotely. A more complete robot rig system means an engineer could design an oil well at his desk. And with the press of a button, an automated system would ... more

Photo: Baker Hughes

Oil field robots part of $34 billion GE-Baker Hughes vision

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Robots could push more humans out of the oil field by 2020, thanks to the proposed combination of Baker Hughes Inc. and GE Oil & Gas.

Autonomous drilling systems are among the technology that can help reduce risk and improve performance in an industry that hasn’t always delivered strong results, executives told analysts and investors this week in New York. Unless companies “find a way to operate fundamentally differently, they are going to continue to deliver subpar returns,” Baker Hughes CEO Martin Craighead said.

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“There’s a clear need for an equipment and services provider and digital partner who can help our customers close these efficiency gaps and turn them into productivity gains,” he said.

Leaders of the two companies laid out the futuristic vision as General Electric Co. and Baker Hughes make the case for a deal that would create an oil giant with $34 billion in annual sales by the next decade. The tie-up will allow it to leapfrog Halliburton Co. to become the world’s second-largest oil-field service provider and equipment maker, trailing only Schlumberger Ltd.

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More complete robotic drilling means ultimately lower labor costs and fewer workers near some of the most dangerous tasks. After the world’s four largest service companies spent $3.12 billion in severance costs over the past two years, the industry is acutely aware of the heavy reliance on manpower in the oil patch, said Art Soucy, president of products and technology for Baker Hughes.

While not completely eliminating humans from the well site, a more complete robot rig system could take as many as 20 workers down to about five, Chris Papouras, director of global operations for the drilling solutions group at Nabors Industries Ltd., the world’s biggest owner of land rigs, said in a separate interview.

“The biggest thing will be the systems,” Ahmed Hashmi, head of upstream technology for BP, said Thursday in an interview in Houston. “To me, it’s not just about automating the rig, it’s about automating everything upstream of the rig.”

That means an engineer could design an oil well at his desk. And with the press of a button, an automated system would identify the equipment needed from a supplier, create a 3-D model, send it to the rig and tell it to execute it, Hashmi said. “That is automation.”

The new Baker Hughes will challenge Schlumberger in developing autonomous drilling systems, a concept inherently tied to Schlumberger’s Rig of the Future initiative, James West, an analyst at Evercore ISI, wrote in a note to investors. No other competitors were in the same ballpark, he said.

“Competition from the New Baker Hughes will help push the pace of automated development and remote operations to new frontiers,” West said.

Today’s oil field is similar to the era before Apple Inc.’s iPhone took off, Nabors’ Papouras said. Within the oil company’s procurement group, one person is buying the camera, someone else is buying the GPS, and a third person is buying the phone. While all may get good pricing, they’re not buying it all in one package, he said.

“This is not a technology challenge,” he said. “This is really a culture shift.”

Shale drillers, which have added 161 oil rigs in the U.S. since an expansion started at the end of May, are banking on promised production cuts by OPEC lifting prices enough to broaden a recovery in the industry. Activity is now the highest it’s been in West Texas, home of the nation’s busiest oil patch, since October of last year.

Talks between GE and Baker Hughes kicked off earlier this year as Baker Hughes sought to marry GE’s digital prediction operating system with the oil service company’s equipment. GE will own 62.5 percent of the new, publicly traded entity, which is expected to retain the Baker Hughes name. The deal, which was announced in late October, is expected to close in the middle of next year.

“Over the years, GE O&G has been built with a series of acquisitions, many of which have a capital equipment/manufacturing aspect, but we’ve always felt it was one or two businesses away from a complete offering that tied it all together,” David Anderson, an analyst at Barclays, wrote this week in a note to investors. “The new Baker Hughes is a portfolio strategy centered on providing the whole value chain.”

At a lunch presentation in Houston this week, BP’s Hashmi called the GE-Baker Hughes deal a “game changer” for the industry because it’s less about simply cost cutting and more about pairing complementary skills together.

The companies expect to capitalize on combined technological capabilities in areas such as 3-D printing. GE has invested more than $1.5 billion to build a so-called additive manufacturing business and has taken majority stakes recently in a pair of European 3-D printing companies. The technology will improve equipment reliability while cutting the number of parts and reducing costs, the companies said.

“Now you have the most complete platform to start dreaming about drilling automation,” Kishore Sundararajan, chief technology officer for GE Oil & Gas, told analysts and investors in New York. “The platform also moves drilling from today an art form to a science. This is a big industry changer.”